ECB’s Visco says worsening COVID picture could hit euro zone recovery

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Growing coronavirus infection numbers are putting at risk the prospects for continued economic recovery in Italy and the euro zone as a whole, Bank of Italy Governor Ignazio Visco said on Friday.

In a speech to bankers in Rome, Visco, who sits on the European Central Bank’s governing council, also said the risk of deflation in the euro zone has declined compared with six months ago but must still not be ignored.

Visco noted that global gross domestic product had picked up more strongly than expected in recent months, but a second wave of COVID-19 now rampant in much of Europe “risks producing a new slowdown in production and demand for goods and services in the near term.”

Italian GDP rebounded by 16.1% in the third quarter, much stronger than expected, but Visco said the resurgence of the virus “threatens to hit the results achieved” and crimp confidence and spending by both firms and households.

He noted the savings rate of Italian families had doubled by the end of the second quarter compared with its 2019 average, and warned that this growing propensity to save could hurt economic growth going forwards.

This could then further erode consumer confidence and trigger a “vicious circle” of more reluctance to spend and still weaker growth.

The Italian government forecasts a full-year economic contraction of 9% this year, with repercussions in terms of bankruptcies and growing bad loans.

Visco said the country’s lenders must avoid accumulating soured loans on their books without adequate provisions. 

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